World Bank estimates $50m cost for African Trust Fund on minerals deals
A newly-launched World Bank Trust Fund that will help African countries to negotiate for the best-possible contracts for their oil, gas and other minerals with international companies will cost about $50 million, a concept paper on the fund has disclosed.
The Fund was launched last week in Paris, France during the 40th Anniversary Meeting of the Zone Franc Monetary Union which was attended by over 20 African Finance Ministers.
“To be transformative this initiative will need a significant amount of resources, estimated at about $50 million,” the concept paper developed by the World Bank said.
The concept note showed that translating natural resources wealth into broad-based development can be difficult in Africa adding that “contracts to develop natural resources are often highly complex, and African governments may be less well-informed about technical details and geological endowments than the oil, gas, or mining companies which come to negotiations with highly-paid lawyers and technical staff.”
According to the World Bank, the size of the facility is “determined by the high costs of procuring legal services in the extractive industry sector”.
It explains that legal and advisory costs associated with extractive industry transactions vary substantially, given the large differences that prevail across countries, sectors, and transactions. “For instance, the costs associated with a new mining concession will generally be higher than those for the renegotiation of an existing contract,” the document added.
It continues “Similarly, the legal inputs required for a competitively tendered concession will be dissimilar, both in nature and extent, to those required for negotiations with a prospective concessionaire on an unsolicited proposal basis. Likewise, the impacts on communities, jobs, and the environment would vary and depend upon the type of extraction process and the surrounding habitat and economy.”
In general, the document indicated that a well qualified international law firm charges at least $1,000 per hour for a senior partner with experience in major oil and gas extraction or mining transactions, with the support of lawyers charging correspondingly lesser amounts (junior associates charge roughly $200 per hour and senior associates/junior partners about $500/hour).
The concept paper notes that there are further differences in standard legal fees across countries and sectors (with generally higher legal costs for extractive industry sector negotiations in parts of Europe than in the US).
In contrast, policy and safeguard advisors can be procured at very much lower rates—closer to $500–$1,000 per day—but assistance may require more time, it said.
The French government has indicated it strongly supports the new fund and encouraged other governments and donors to back the World Bank-led initiative.
“We stand fully behind the World Bank in its efforts to help African countries secure the best-possible mineral contracts with international companies in order to promote the long-term development of their countries and the wider continent. We urge other governments and donors to also support this new World Bank initiative,” said French Finance Minister, Pierre Moscovici.
World Bank’s Vice President for Africa, Makhtar Diop has welcomed the French government’s strong support and says the new fund would work closely with the African Development Bank and other partners for maximum impact, and would welcome donor support to expand its reach.
“It is clear that Africa sits on top of extraordinary wealth and that these natural resources could be transformational for the continent,” said Diop.
“Being able to negotiate the best-possible deals is essential for African countries to convert more of their natural resources wealth into inclusive and sustainable growth,” added Diop.
The proposed new fund, according to the World Bank would cover several key priorities.
1. Legal advice to negotiate better deals from private investors—This could include direct legal advice during negotiations, advice on the methods of negotiation (competitive bidding, bilateral negotiations, and so on), advice on different transactions fees. Advice would be available from reputable legal firms.
2. Help to reduce environmental risks—Environmental risks occur at two stages: during extraction and when operations close. Technical assistance is typically needed to assess environmental impacts, as well as to develop workable solutions and remedies that are effective.
3. Technical assistance to address social risks—This could include advice on new benefit sharing arrangements drawing on other Bank and global experience , as well as technical assistance to assess social impacts, health, and livelihood effects, as well as local service delivery.
Which African countries will qualify?
The Trust Fund would be demand-driven but in the initial pilot phase complete preference would be given to countries which meet the following criteria:
1. Countries with significant discoveries of oil, gas, or mineral reserves, and that are in the process of negotiating contracts. The initial pilot will concentrate its resources and its efforts on the most difficult development challenges and countries with the weakest capacity.
2. There is a demand from the country, and willingness to receive advisory services for well- identified sound projects. Making the Trust-Fund demand-driven ensures that Trust Fund resources are used where they are most likely to be converted into results on the ground.
3. There should be social and environmental challenges of significance. To make the best use of its limited resources, the Trust Fund should focus on providing technical assistance on social and environmental aspects for projects where there are challenges of significance.
According to the World Bank, Africa is holding 15% of the world’s oil reserves, 40% of its gold, and about 80% of the platinum group of metals.
By Ekow Quandzie